NewsWire: Watch the dollar this Wednesday

From Scott Garliss at the Stansberry NewsWire:

The Federal Reserve’s next policy announcement is Wednesday afternoon. Lately, the Fed hasn’t announced rate hikes unless there’s a follow-up press conference, so rates should stay unchanged. Right now, June is the month to watch… That’s the next meeting followed by a press conference.

Wednesday’s focus will be the Fed’s commentary on the economy. Friday saw the release of first-quarter gross domestic product (GDP) data. While the number was below the 3% growth the White House is targeting, it was still above expectations. It was the first time since 2008 that first-quarter GDP has exceeded official expectations, and many GDP forecasting models had not predicted growth either. The Fed will have to take this into consideration at their meeting.

First-quarter core Personal Consumption Expenditure (PCE) data were also released. (“Core” means the data exclude food and energy prices in the calculations.) That number was 2.5%, in-line with expectations, and versus 1.9% prior. These data indicate that inflation is picking up and moving to – and in this case, through – the Fed’s target. Remember, Fed chair Jerome Powell has said that as weak data annualize and drop off, we’ll see inflation accelerate. Could this be what’s happening?

Friday’s U.S. GDP data are interesting considering last week’s policy announcements from the European Central Bank (ECB) and the Bank of Japan (BoJ), as well as GDP data from the U.K., Spain, and France. The ECB feels that recent moderation in growth is temporary, while the BoJ said that powerful monetary easing will remain in place. France, Spain, and the U.K. all saw worse-than-expected economic growth data.

This all makes owning the dollar more compelling, as U.S. growth is outperforming other major economies. Investors have been buying the euro and yen hoping those central banks would have to play catch-up with the Fed. But the data show that’s not in the cards right now. That could boost the dollar while weighing on the two currencies.

Given the recent positive data, the Fed will likely talk up growth and inflation this week, driving the dollar and yields higher. Remember, 47% of S&P 500 Index revenues are from multinational U.S. businesses. In other words, a cheaper dollar boosts their sales abroad while a stronger dollar weighs on those sales.

If the Fed talks up growth and inflation, it could put more downside pressure on the S&P 500. If not, and the Fed’s message remains status quo – the dollar and yields could see their recent gains erode, boosting the S&P 500. In the meantime, the market will be waiting patiently…


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